INTRODUCTION

     We prepare the Interim Report as an update of our Annual Report, with a focus on the current period. As such, the Interim Report should be read in conjunction with the Annual Report, which includes detailed analysis of our operations and activities.

table of contents

Key figures ⁽¹⁾

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Management’s discussion and analysis

Overview of financial results for the second quarter of fiscal 2006

     We believe, results for the second quarter demonstrate that the Company’s Fit4More program is making a significant difference after just one year. Siemens’ evolving portfolio is positioning the Company strongly in its growth markets, resulting in double-digit increases in sales and orders in the second quarter of fiscal 2006, along with higher profits at the majority of Siemens’ operating Groups and an increase in net income despite significantly higher severance charges in the Information and Communications (I&C) business area. The Company expects volume growth rate to even out somewhat compared to the rapid pace of the first half, and that severance programs already in place at I&C will result in further charges in the second half. Overall, Siemens continues to focus on achieving its stated 2007 targets.

     For the second quarter of fiscal 2006, ended March 31, 2006, Siemens reported net income of €887 million, up 14% compared to €781 million in the same period a year earlier. Basic and diluted earnings per share rose to €1.00 and €0.95, respectively, from €0.88 and €0.84 in the same quarter a year earlier. Discontinued operations lost €14 million in the quarter, compared to a loss of €79 million in the prior-year period. Income from continuing operations in the second quarter was €901 million, and corresponding basic and diluted earnings per share were €1.01 and €0.97, respectively. A year earlier, income from continuing operations in the second quarter was €860 million, and corresponding basic and diluted earnings per share were €0.96 and €0.92, respectively.

     Most Groups within Operations increased their earnings year-over-year. Major earnings contributors were Automation and Drives (A&D), Medical Solutions (Med), Power Generation (PG), Siemens VDO Automotive (SV) and Osram. Severance charges at Communications (Com) and Siemens Business Services (SBS) totaled €178 million, approximately double the level in the prior-year period.

     Net income in the second quarter benefited from a gain on the sale of an investment and a positive effect related to the settlement of an arbitration proceeding, both within corporate items. In contrast, income before income taxes from Financing and Real Estate activities in the second quarter declined to €77 million from €123 million in the prior-year period, which included a special dividend related to an investment.

     Second-quarter orders of €24.413 billion, including large orders at PG and Transportation Systems (TS), were up 22% compared to the second quarter a year earlier. Sales increased 21% year-over-year, to €21.510 billion. While sales and orders rose modestly in Germany, all other regions reported double-digit growth in both sales and orders for the quarter. Excluding currency translation effects and the net effect of acquisitions and dispositions, second-quarter orders rose 9% and sales were up 8% year-over-year.

     On a continuing basis, net cash from operating and investing activities within Operations in the second quarter was €173 million compared to a negative €153 million in the prior-year period. While the current period included significantly higher payouts from severance programs compared to the prior-year period, it also included higher proceeds from sales of investments. In both periods under review, Operations used significant cash for net working capital and capital expenditures associated with business growth. Within Financing and Real Estate and Corporate Treasury activities, net, cash from operating and investing activities in the second quarter was €228 million compared to €295 million a year earlier. For Siemens on a continuing basis, operating and investing activities in the second quarter provided net cash of €401 million compared to net cash provided of €142 million a year earlier.

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Results of Siemens

Results of Siemens – Second quarter of fiscal 2006 compared to second quarter of fiscal 2005

     The following discussion presents selected information for Siemens for the second quarter:

     Second-quarter orders were up 22% year-over-year, to €24.413 billion, which included large orders at PG and TS. Sales of €21.510 billion were up 21%, compared to the second quarter a year earlier. Excluding currency translation effects and the net effect of acquisitions and dispositions, second-quarter orders rose 9% and sales were up 8% year-over-year. In Germany, orders rose slightly by 1% to €4.032 billion, and sales were up 5% to €3.958 billion. International orders increased by 27% compared to the prior-year period to €20.381 billion, and sales rose 26% year-over-year, to €17.552 billion.

     Within international growth, Asia-Pacific posted orders of €3.405 billion, a 15% increase, and sales rose 33% to €3.182 billion year-over-year. Within Asia-Pacific, second-quarter orders in China increased 10%, to €1.104 billion, while second-quarter sales in China surged 73%, to €1.076 billion. Growth in the Americas was also robust, with the region as a whole, generating orders and sales growth of 27% and 31%, respectively. Within this trend, the U.S. posted orders of €4.524 billion, an increase of 26%, and sales of €4.373 billion were 31% higher than in the second quarter a year earlier. Orders and sales include beneficial currency translation effects. In Europe outside Germany, orders for the second quarter were 12% higher year-over-year, at €7.767 billion, and sales increased 16%, to €6.745 billion.

     Gross profit increased by 14%, as a majority of the Groups in Operations increased their earnings year-over-year. Gross profit margin for the second quarter came in lower, at 27.8% compared to 29.6% a year earlier, due primarily to a changed sales mix as a result of recent acquisitions, pricing pressure, especially for gas turbine systems at PG, and higher severance charges at SBS.

     Second-quarter research and development (R&D) expenses increased to €1.420 billion from €1.231 billion a year earlier, including significantly higher outlays at Med, SV and A&D. Due to a significant increase in sales, however, R&D declined as a percentage of sales to 6.6% from 6.9% in the prior-year quarter. Marketing, selling and general administrative expenses as a percentage of sales also declined year-over-year, to 17.7% from 18.1%. Other operating income (expense), net of €106 million benefited from a positive effect related to the settlement of an arbitration proceeding. A year earlier, other operating income was a negative €23 million.

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A gain on the sale of a centrally held investment was the major factor in higher income from investments in other companies, net, which increased to €297 million from €212 million in the prior-year period.

     In the second quarter, income from continuing operations was €901 million compared to €860 million in the same period a year earlier. The loss from discontinued operations, net of income taxes, was €14 million compared to €79 million in the prior-year period. Second-quarter net income was €887 million, up from €781 million a year earlier.

Results of Siemens – First six months of fiscal 2006 compared to first six months of fiscal 2005

     The following discussion presents selected information for Siemens for the six months:

     Orders in the first six months of fiscal 2006 of €51.201 billion were up 27% from €40.431 billion a year earlier. Major orders were numerous and well-distributed, and international markets were the growth engines for the first half. Sales were €42.229 billion, a 22% increase from €34.756 billion in the prior-year period. Excluding currency translation effects and the net effect of acquisitions and dispositions, orders climbed 11% and sales rose 8%. In Germany, orders increased 6%, to €8.850 billion, and sales were up 4%, at €8.036 billion, primarily due to acquisitions between the periods under review. Meanwhile international orders climbed 32% year-over-year, to €42.351 billion, and sales for the first six months rose 27% compared to the prior-year period, to €34.193 billion.

     Within international growth, Asia-Pacific posted sales of €6.034 billion, a 38% increase year-over-year, and orders of €8.269 billion, a 42% jump. Within Asia-Pacific, first-half sales in China surged 66%, to €2.075 billion, while first-half orders in China climbed 43%, to just below €3.0 billion. Growth in the Americas was also robust, with the region as a whole generating sales and order growth of 28% and 27%, respectively. Within this trend, the U.S. posted sales of €8.208 billion and orders of €8.922 billion, both 22% higher than in the first half a year earlier including beneficial currency translation effects. In Europe outside Germany, sales for the first six months were 17% higher year-over-year, at €13.418 billion, and orders increased 20%, to €15.915 billion.

     Gross profit for the first six months increased by 8% year-over-year, as a majority of the Groups in Operations increased their earnings. Gross profit margin for the first half of fiscal 2006 was 27.4% compared to 30.7% a year earlier, due primarily to a changed sales mix as a result of recent acquisitions, pricing pressure, especially for gas turbine systems at PG, and higher severance charges at SBS and Com.

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     R&D investments and marketing, selling and general administrative expenses in the first half-year increased compared to the first half a year earlier, but declined as a percentage of sales due primarily to significant sales growth between the two periods under review. Other operating income (expense), net was a positive €175 million compared to a negative €6 million in the first half a year earlier. The increase was due in part to a settlement of an arbitration proceeding and higher gains from sales of real property in fiscal 2006. Income from financial assets and marketable securities rose year-over-year, in part due to higher gains on the sale of shares in Juniper Networks, Inc. (Juniper), which amounted to €356 million in the current period and €208 million in the prior-year period, partly offset by a decline in income from hedging activities not qualifying for hedge accounting at Corporate Treasury year-over-year.

     Income from continuing operations was €1.716 billion in the first half, down from €1.943 billion in the same period a year earlier due primarily to higher losses at SBS. This resulted in lower net income for the first half compared to the prior-year period despite a smaller loss from discontinued operations year-over-year.

Segment information analysis

Operations

Information and Communications

Communications (Com)

     Com’s second-quarter sales and orders in fiscal 2006 were €3.383 billion and €3.562 billion, respectively. Group profit of €27 million in the second quarter included a positive effect related to a contract renegotiation. Both the current and prior-year period included modest severance charges.

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Com’s Carrier Networks business delivered most of the Group’s sales growth year-over-year, as pricing pressure and shifts in sales mix resulted in flat sales in the Enterprise Networks business and a decline in sales in the Devices business.

     In the first half of fiscal 2006, sales at Com were €6.803 billion, up 9% year-over-year, and orders were €7.456 billion, 7% higher than in the first half a year earlier. Group profit at Com was €350 million compared to €480 million in the prior-year period. Both periods included gains on the sales of shares in Juniper, totaling €356 million in the current half-year and €208 million in the first six months a year earlier. Severance charges were also higher in the current period, at €167 million, compared to modest charges in the first half of fiscal 2005. Severance charges are expected to increase in the second half of the current year. Com’s Carrier Networks business delivered higher sales compared to the prior-year first half, while sales at the Enterprise Networks business remained flat and the Devices business reported falling sales.

     Following an intensive analysis by the Managing Board associated with the strategic reorientation of Com’s operations, it was determined that the Siemens Home and Office Communication Devices division will be reclassified to Other Operations effective with the beginning of the third quarter on April 1, 2006. Reporting for both Com and Other Operations will be recast on a retroactive basis, to present meaningful comparisons between current and prior periods.

Siemens Business Services (SBS)

     SBS recorded higher second-quarter sales of €1.393 billion in fiscal 2006. Orders came in at €1.360 billion, lower than in the prior-year period due to more selective order intake and a smaller number of major orders compared to the second quarter a year earlier. The Group’s loss of €194 million included higher severance charges, which totaled €155 million compared to €63 million in the second quarter a year earlier.

     In the first half of fiscal 2006, sales at SBS rose to €2.799 billion, while orders declined to €2.865 billion due to the factors mentioned above. The Group’s loss of €423 million included severance charges, totaling €363 million. In the first six months of fiscal 2005, the majority of severance charges were taken in the second quarter. SBS expects further severance charges in the second half of the fiscal year, at a lower level than in the first half.

     After the end of the second quarter, SBS closed the sale of its Product Related Services (PRS) business to Fujitsu Siemens Computers (Holding) BV.

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Automation and Control

Automation and Drives (A&D)

     Beginning in fiscal 2006, A&D includes the Electronics Assembly Systems division on a retroactive basis, to present a meaningful comparison with prior periods. The division was formerly part of the Logistics and Assembly Systems Group (L&A), which was dissolved as of the beginning of fiscal 2006.

     A&D increased Group profit to a record €371 million in the second quarter, up 33% compared to the same period a year earlier. The increase was broad-based, including positive contributions from acquisitions between the periods under review. A&D boosted second-quarter sales 32% year-over-year, to €3.155 billion, benefiting from both acquisitions and organic growth. Orders increased even faster, rising 40% to €3.471 billion on strong demand in Asia-Pacific and Europe.

     First-half Group profit at A&D reached €725 million, a new high and a 26% increase compared to the first half a year earlier. A&D’s acquisitions in the fourth quarter of fiscal 2005 contributed to earnings in the first six months of fiscal 2006. Sales and order growth in the first half followed the same pattern as the second quarter, benefiting from acquisitions and organic growth. Regionally broad demand was highlighted by rapid growth in Asia-Pacific.

Industrial Solutions and Services (I&S)

     Beginning in fiscal 2006, I&S includes the Airport Logistics and Postal Automation divisions, formerly of L&A, on a retroactive basis.

     In fiscal 2006, second-quarter orders at I&S increased to €2.447 billion, largely due to Siemens’ acquisition of VA Technologie AG (VA Tech) between the periods under review. The VA Tech activities allocated to I&S more than offset lower orders in the Group’s Postal Automation and Airport Logistics divisions compared to the prior-year period. The VA Tech acquisition also made a significant contribution to the increase in sales at I&S. Group profit rose to €74 million from €59 million a year earlier, primarily due to higher sales.

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     First-half orders, sales and Group profit came in well above the prior-year level due to the factors mentioned above. For comparison, the first half a year earlier included a larger number of major orders in the postal and airport businesses.

Siemens Building Technologies (SBT)

     Group profit at SBT was €52 million in the second quarter of fiscal 2006, up from €22 million in the same period a year earlier. The increase resulted from higher capacity utilization combined with higher sales, which rose to €1.169 billion. Orders climbed to €1.318 billion, on higher demand for SBT’s building automation and fire safety solutions.

     In the first half of fiscal 2006, the same factors mentioned above lifted Group profit at SBT by 44% year-over-year, to €102 million. Sales in the first half were €2.271 billion, up from €2.040 billion in the prior-year period, and broad-based demand for SBT’s security, safety, building comfort and building automation solutions boosted orders to €2.691 billion from €2.216 billion a year earlier.

Power

Power Generation (PG)

     Second-quarter orders at PG climbed 30% year-over-year, to €3.259 billion, fueled by a number of major orders including a very large power generation contract in the Middle East. Sales rose 21%, to €2.453 billion, spanning the Group’s power generation, industrial turbine and wind power businesses. Group profit was €247 million in the second quarter compared to €257 million in the same period a year earlier, due in part to lower equity earnings from a joint venture. The decline in the Group’s earnings margin year-over-year reflects its changing sales mix as well as market-driven shifts in pricing for gas turbine systems.

     For the first half, orders at PG climbed to €7.319 billion from €5.000 billion in the same period a year earlier, including major order intake in Middle East, Europe and Asia-Pacific. Sales also rose rapidly, to €4.527 billion from €3.602 billion in the first half a year ago. Group profit of €424 million reflects the factors mentioned above, as well as an adverse result in arbitration related to a turnkey project in the Philippines. In contrast, Group profit a year earlier included higher cancellation gains.

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Power Transmission and Distribution (PTD)

     PTD’s sales surged 68% year-over-year, to €1.496 billion, and orders climbed 46%, to €1.797 billion, on a combination of organic growth and additional volume from the VA Tech acquisition between the periods under review. While PTD’s second-quarter Group profit rose to €81 million from €61 million a year earlier, the Group’s earnings margin showed the effects of integrating its VA Tech activities.

     In the first half of fiscal 2006, PTD recorded high double-digit increases in orders and sales, which rose to €4.270 billion and €2.952 billion, respectively. While the VA Tech acquisition accounted for much of the increase, PTD also delivered strong organic growth, particularly in the Middle East. Group profit rose to €165 million from €113 million in the first half of fiscal 2005 on higher sales.

Transportation

Transportation Systems (TS)

     Group profit was €21 million at TS in the second quarter of fiscal 2006. The period included a large number of major new contracts in Europe, the Middle East and Africa. As a result, orders came in 78% higher than a year earlier, at €1.803 billion. Sales rose 7% year-over-year, to €1.005 billion.

     TS posted Group profit of €42 million for the first half of fiscal 2006, up from €24 million in the same period a year earlier, on higher sales of €2.069 billion. Strong demand in the first six months for trains lifted orders 73% year-over-year, to €3.880 billion.

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Siemens VDO Automotive (SV)

     SV’s second-quarter Group profit of €177 million benefited from a gain on the sale of an investment, which largely offset significantly higher research and development expenses compared to the prior-year period. Sales and orders rose 11% year-over-year, to €2.615 billion and €2.612 billion, respectively.

     Similar factors influenced SV’s results for the first half, including a 12% increase in Group profit and stepped-up R&D expenses. In the current period, SV also had gains from sales of investments related to joint ventures in both quarters. Group-wide growth lifted first-half sales and orders to €5.063 billion and €5.060 billion, respectively.

Medical

Medical Solutions (Med)

     Second-quarter Group profit at Med was up 18% year-over-year, climbing to €258 million. Diagnostics imaging solutions continued their strong contribution to both earnings and volume growth. Sales and orders rose to €2.047 billion and €2.096 billion, respectively, highlighted by fast-growing demand in Asia-Pacific.

     Med’s sales and orders in the first six months rose to €4.031 billion and €4.252 billion, respectively. For the first half, Med reported Group profit of €504 million, up 16% year-over-year on higher sales.

     After the close of the second quarter, Siemens announced that it entered into an agreement under which the Company will acquire Diagnostic Products Corporation (DPC) for a preliminary purchase price of approximately $1.86 billion (approximately €1.54 billion). For further information see “Subsequent events.”

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Lighting

Osram

     Osram boosted second-quarter Group profit 13%, to €132 million. Demand was particularly strong in the U.S. and China, sending sales and orders up to €1.206 billion from €1.057 billion in the second quarter a year earlier. Group profit for the first six months of fiscal 2006 reached €257 million on a broad-based increase in sales, which rose to €2.364 billion.

Other Operations

     Other Operations consist of centrally held operating businesses not related to a Group. These businesses include joint ventures, equity investments, a portion of the VA Tech acquisition, and the Dematic businesses carved out of the former Logistics and Assembly Systems Group.

     In the second quarter, Group profit from Other Operations was €79 million compared to €70 million a year earlier. Earnings from joint ventures in the second quarter were somewhat higher than in the same quarter a year earlier. The Dematic businesses posted losses in both periods. The VA Tech acquisition contributed to the increase in sales year-over-year, to €890 million from €660 million a year earlier.

     For the first six months, Group profit from Other Operations was €112 million compared to €141 million in the same period a year earlier. The difference was primarily due to higher losses in the Dematic businesses. Sales rose to €1.887 billion from €1.404 billion in the first half of the prior year, including a sizable contribution from VA Tech. The Dematic businesses anticipate restructuring and other measures in the second half of fiscal 2006.

Reconciliation to Financial Statements

     Reconciliation to financial statements includes various categories of items which are not allocated to the Groups because the Managing Board has determined that such items are not indicative of Group performance.

Corporate items, pensions and eliminations

     Corporate items, pensions and eliminations totaled a negative €184 million in the second quarter, compared to a negative €289 million in the same period a year earlier. The improvement is due to a gain of €95 million on the sale of an investment and a positive effect related to the settlement of an arbitration proceeding. Centrally carried pension expense increased slightly due to a reduction in the discount rate assumption at September 30, 2005.

     In the first six months of fiscal 2006, Corporate items, pensions and eliminations totaled a negative €513 million compared to a negative €559 million in the first six months a year earlier. The improvement is due to the factors mentioned above, partly offset by higher centrally carried pension expense.

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Other interest expense

     Other interest expense of Operations for the second quarter of fiscal 2006 was €91 million compared to interest expense of €36 million a year earlier. For the first half of fiscal 2006 other interest expense of Operations was €182 million, up from €64 million a year earlier. The change was mainly due to increased intra-company financing of Operations by Corporate Treasury year-over-year.

Financing and Real Estate

Siemens Financial Services (SFS)

     Income before income taxes at SFS was €44 million in the second quarter. The difference year-over-year is due primarily to a one-time benefit in the prior-year period, when an investment held by the Equity division paid a special dividend. For the first half-year, SFS posted income before income taxes of €123 million compared to €189 million in the first half a year earlier, which included the special dividend mentioned above, as well as a gain on sale of an investment. Total assets at the end of the first half were nearly unchanged compared to the end of fiscal 2005.

Siemens Real Estate (SRE)

     In the second quarter, SRE recorded income before income taxes of €33 million, level with the prior-year period. The Group offset lower rental earnings with higher income from sales of real property. Similar factors resulted in an increase in income before income taxes for the first six-month period of fiscal 2006, which benefited from strong first quarter income.

Eliminations, reclassifications and Corporate Treasury

     Income before income taxes from Eliminations, reclassifications and Corporate Treasury for the second quarter of fiscal 2006 was €99 million, compared to €77 million a year earlier. The difference was due mainly to increased interest income at Corporate Treasury from intra-company financing.

     Income before income taxes from Eliminations, reclassifications and Corporate Treasury for the first six months of fiscal 2006 was €164 million, compared to €181 million in the same period a year earlier. The difference was due mainly to reduced interest rate hedging activities not qualifying for hedge accounting, as business growth, particularly involving substantial cash outflows for acquisitions and build-up of net working capital, resulted in a shift in Siemens’ net debt position. This effect was partly offset by increased interest income from intra-company financing activities.

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Liquidity, capital resources and capital requirements

Cash flow – First six months of fiscal 2006 compared to first six months of fiscal 2005

     The following discussion presents an analysis of Siemens’ cash flows for the six-month period ended March 31, 2006 and 2005. The first table presents cash flow for continuing and discontinued operations. The second table focuses on cash flow from continuing operations for the components of Siemens.

     In the first half of fiscal year 2006, Siemens on a continuing basis used net cash from operating and investing activities of €419 million compared to net cash used of €1.864 billion in the prior-year period. Discontinued operations, which consist of Com’s former mobile devices business, used net cash of €230 million in the first six months of fiscal 2006. In the first six months a year earlier, discontinued operations used net cash of €634 million. Including continuing and discontinued operations, net cash used in operating and investing activities was €649 million compared to net cash used of €2.498 billion in the first half of the prior year.

     Operations provided net cash from operating activities of €267 million in the first six months of fiscal year 2006, despite substantial cash outflows for severance payouts. In the same period a year earlier, Operations used net cash in operating activities of €852 million. Both periods included significant build ups of net working capital associated with business growth, particularly with regard to net inventories at PG, I&S, Com, A&D and PTD in the current period and at PG and TS in the prior-year period. In the first half of fiscal 2006, higher inventories were partly offset by a rise in other current liabilities due to higher advance payments associated with order growth, especially at PG and TS. The prior-year period included supplemental contributions to Siemens pension plans of €1.496 billion. Corporate Treasury and Financing and Real Estate provided net cash from operating activities of €840 million in the first half of fiscal 2006, up from €759 million in the same period year earlier. For Siemens as a whole, net cash provided by operating activities was €1.107 billion in the first six months of fiscal 2006 compared to net cash used of €93 million in the prior-year period.

     Investing activities showed the effects of overall business growth in both periods, particularly including significant cash outflows for capital expenditures. Within Operations, investing activities used net cash of €1.024 billion in the first half, compared to €1.299 billion in the first half a year earlier.

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The difference between the two periods is due largely to higher proceeds from sales of long-term investments, as well as higher proceeds from sales of marketable securities, which include the sale of Juniper shares totaling €465 million in the current period compared to €263 million a year ago and proceeds of €90 million from the sale of Siemens’ remaining interest in Epcos AG at the end of the second quarter of fiscal 2006. Within the Corporate Treasury and Financing and Real Estate components, investing activities in the current period used net cash of €502 million compared to €472 million in the prior-year period. Siemens as a whole used net cash from investing activities of €1.526 billion compared to net cash used of €1.771 billion in the same period a year earlier.

     In the first half of fiscal 2006, financing activities used net cash of €1.650 billion compared to net cash used of €586 million a year earlier. Short-term debt under commercial paper programs, as well as bank loans were repayed, contributing to a change in short-term debt of negative €1.105 billion for the first six months of fiscal 2006. The current period included net proceeds from the issuance of long-term debt of €833 million under a medium-term note program. In the prior-year period, changes in short-term debt provided net cash of €640 million including net proceeds from the issuance of commercial papers. In fiscal 2006, dividends paid to shareholders increased to €1.201 billion, up from dividends paid of €1.112 billion in the prior year as a result of a higher per share dividend.

Pension plan funding

     At the end of the first six months of fiscal 2006, the combined funding status of Siemens’ principal pension plans showed an underfunding of €2.9 billion, compared to an underfunding of €3.5 billion at the end of fiscal 2005. The improvement was due to regular contributions, as well as a higher-than-expected actual return on plan assets in the first six months.

     The fair value of plan assets of Siemens’ principal funded pension plans on March 31, 2006 was €22.4 billion, compared to €21.5 billion on September 30, 2005.

     In the first six months of fiscal 2006, regular employer contributions amounted to €513 million compared to €315 million in the first six months of the prior year. The first six months of the prior year included supplemental cash contributions of €1.496 billion.

     The estimated projected benefit obligation (PBO) for Siemens’ principal pension plans, which takes into account future compensation increases, amounted to €25.3 billion on March 31, 2006. This was approximately €300 million higher than the PBO of €25.0 billion on September 30, 2005, due to the net of pension service and interest costs less benefits paid during the six-month period, less currency translation effects.

     For more information on Siemens’ pension plans, see “Notes to Consolidated Financial Statements.”

Capital resources and capital requirements

Equity

     At the Annual Shareholders’ Meeting on January 26, 2006, our shareholders gave authorization to repurchase up to 10% of the Siemens’ €2.673 billion common stock. The resolution is valid until July 25, 2007. According to this resolution, shares that are repurchased may be sold via a stock exchange; or (i) retired with the approval of the Supervisory Board; (ii) used to satisfy our obligations under the 1999 Siemens Stock Option Plan and the 2001 Siemens Stock Option Plan; (iii) offered for sale to employees or former employees within the employee share program; or (iv) used to service conversion or option rights granted by the Company in connection with the issuance of bonds. In addition, the Supervisory Board is authorized to offer repurchased shares to the members of the Managing Board of Siemens under the same terms and conditions as those offered to employees of Siemens, or the Supervisory Board may grant and transfer such shares to members of the Managing Board as stock-based compensation with a holding period of at least two years.

     Authorized Capital 2001/II of €67 million, representing approximately 22 million shares, expired on February 1, 2006. At the Annual Shareholders’ Meeting on January 26, 2006, the Company’s shareholders authorized the Managing Board to increase the common stock by January 25, 2011, with the approval of the Supervisory Board, by up to €75 million, representing 25 million shares of no par value registered in the names of the holders against contributions in cash (Authorized Capital 2006). The authorization may be implemented in installments. Preemptive rights of existing shareholders shall be excluded. Once registered, the new shares shall be issued under the condition that they are offered exclusively to employees of Siemens AG and its subsidiaries, provided these subsidiaries are not listed companies themselves and do not have their own employee stock schemes.

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The Managing Board shall be authorized to determine, with the approval of the Supervisory Board, the further content of the rights embodied in the shares and the terms and conditions of the share issue. Authorized Capital 2006 becomes effective and may only be used upon its registration, which is expected to be completed during the third quarter of fiscal 2006.

Debt

     The Company updated its €5.0 billion medium-term note program on the basis of a new European Union Directive in March 2006. The amount outstanding under this program was €1.786 billion as of March 31, 2006, compared to €966 million as of September 30, 2005. The amount outstanding under our U.S.$3.0 billion and €3.0 billion commercial paper programs declined to €632 million as of March 31, 2006, compared to €1.484 billion as of September 30, 2005.

EVA performance

     Siemens ties a portion of its executive incentive compensation to achieving economic value added (EVA) targets. EVA measures the profitability of a business (using Group profit for the Operations Groups and income before income taxes for the Financing and Real Estate businesses as a base) against the additional cost of capital used to run a business (using Net capital employed for the Operations Groups and risk-adjusted equity for the Financing and Real Estate businesses as a base). A positive EVA means that a business has earned more than its cost of capital, whereas a negative EVA means that a business has earned less than its cost of capital. Depending on the EVA development year-over-year, a business is defined as value-creating or value-destroying. Other companies that use EVA may define and calculate EVA differently. EVA in the first half of fiscal 2006 was positive and level with the same period a year earlier.

Legal proceedings

     On January 19, 2006, the U.S. Attorney for the Northern District of Illinois charged Siemens Medical Solutions US (SMS) with committing mail and wire fraud in connection with a bid on a public contract for radiological equipment in the year 2000. The charges are based on alleged non-compliance with certain bidding terms and alleged misconduct during a trial related to the fulfillment of such terms. The bidding terms of the public contract were later ruled unconstitutional. SMS, which has cooperated with the government’s investigation, considers the allegations as unjustified and intends to oppose them in court.

Report on the United Nations Oil-for-Food Programme

     On February 24, 2006, Siemens received a subpoena from the U.S. Securities and Exchange Commission (SEC) requiring the production of certain documents relating to the Oil-for-Food Programme and to certain other matters. Siemens is cooperating with the SEC. For further information relating to the Oil-for-Food Programme, please refer to our annual report on Form 20-F.

Subsequent events

     At the beginning of April 2006, SBS closed the sale of its Product Related Services (PRS) business to Fujitsu Siemens Computers (Holding) BV.

     On April 3, 2006, the Company completed the sale of its remaining shares in Infineon Technologies AG for net proceeds of approximately €1.1 billion. This transaction will result in a gain of approximately €33 million in the third quarter of fiscal 2006.

     After the close of the second quarter, Siemens also announced an agreement to sell its VA Tech hydropower activities to Andritz AG of Austria. The sale, which requires regulatory approval, is expected to close in the third quarter.

     At the end of April 2006, Siemens announced that it entered into an agreement under which Siemens will acquire Diagnostic Products Corporation (DPC) for a preliminary purchase price of approximately $1.86 billion (approximately €1.54 billion). DPC is a leading provider of immunodiagnostic products and will be integrated into Med. Siemens will offer $58.50 per share to DPC’s shareholders.

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The completion of the transaction is expected for fiscal 2006, subject to approval by DPC’s shareholders, receipt of regulatory approvals and other customary closing conditions.

     This Interim Report contains forward-looking statements and information — that is, statements related to future, not past, events. These statements may be identified by words as “expects,” “anticipates,” “intends,” “plans,” “believes,” “seeks,” “estimates,” “will” or words of similar meaning. Such statements are based on our current expectations and certain assumptions, and are, therefore, subject to certain risks and uncertainties. A variety of factors, many of which are beyond Siemens’ control, affect its operations, performance, business strategy and results and could cause the actual results, performance or achievements of Siemens worldwide to be materially different from any future results, performance or achievements that may be expressed or implied by such forward-looking statements. For us, particular uncertainties arise, among others, from changes in general economic and business conditions, changes in currency exchange rates and interest rates, introduction of competing products or technologies by other companies, lack of acceptance of new products or services by customers targeted by Siemens worldwide, changes in business strategy and various other factors. More detailed information about certain of these factors is contained in Siemens’ filings with the SEC, which are available on the Siemens website, www.siemens.com and on the SEC’s website, www.sec.gov. Should one or more of these risks or uncertainties materialize, or should underlying assumptions prove incorrect, actual results may vary materially from those described in the relevant forward-looking statement as expected, anticipated, intended, planned, believed, sought, estimated or projected. Siemens does not intend or assume any obligation to update or revise these forward-looking statements in light of developments which differ from those anticipated.

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SIEMENS AG

CONSOLIDATED STATEMENTS OF INCOME (unaudited)
For the three months ended March 31, 2006 and 2005
(in millions of €, per share amounts in €)

The accompanying notes are an integral part of these consolidated financial statements.

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SIEMENS AG

CONSOLIDATED STATEMENTS OF INCOME (unaudited)
For the six months ended March 31, 2006 and 2005
(in millions of €, per share amounts in €)